ALAMEDA, Calif. — Faced with a $30 million legal judgment after losing two rounds in court, the financial fate of the small ski resort town of Mammoth Lakes is in the hands of the California Supreme Court.

If the high court refuses to take the case or upholds the lower courts’ award, the town could face bankruptcy, its leaders say.

“It’s an option that’s out there if nothing else solves the case,” town manager Rob Clark said in a phone interview.

Clark stressed that Chapter 9 would be the town’s least-preferred option.

The town has about $3.4 million outstanding on four separate certificates of participation, ­according to its most recent financial statement, for the fiscal year ending in June 2009.

“I don’t see those being affected by this,” Clark said of the town’s outstanding COPs.

In 2008, the Superior Court in Mono County awarded $30 million to a developer who sued Mammoth Lakes, saying the town breached a development agreement contract.

A state appellate court upheld that ruling on Dec. 30.

If the town ultimately has to pay the full award, Mammoth Lakes’ first choice would be to issue judgement bonds, according to Clark.

“We don’t have $30 million sitting in the bank or anything like that,” he said.

The town hired new lawyers to petition for a hearing at the state Supreme Court. The town has until Feb. 8 to file its petition. California’s high court has no obligation to hear the case.

“The Town Council feels that the case raises significant issues of statewide concern to all cities and counties with respect to adjudication of development agreements, and that this may encourage the Supreme Court to hear the case,” a town release said.

According to the release, town officials are also preparing for settlement negotiations with the developer and are seeking legal advice on Chapter 9 bankruptcy options.

Mammoth Lakes’ insurance carrier denied its claim for coverage of the damage award, and the town is also challenging that decision.

Mammoth Lakes has about 7,300 residents. It is best known as the base for the Mammoth Mountain ski resort, which caters primarily to Los Angeles-area residents who make the five- or six-hour drive.

The town’s legal woes stem from its efforts to broaden that market. Town officials signed a deal with a developer who agreed to develop its airport and surrounding property in a way that would benefit from passenger air service, but efforts to land mainline jet service foundered as Mammoth Lakes was unable to obtain environmental clearances to lengthen the runway.

The developer’s breach-of-contract suit argued that the city was responsible.

The town argued that the contract language protected Mammoth Lakes from the consequences of federal actions beyond its control.

Mammoth Lakes COPs carry an underlying BB rating from Standard & Poor’s, with a developing outlook.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.